Ratings agencies see potentially positive financial effects for insurers in the individual market and in Medicaid managed care.


March 9—National insurer groups raised concerns about different provisions of a bill to repeal and replace much of the Affordable Care Act (ACA), but also expressed support for some of the measures.

In a letter this week to legislators considering the American Health Care Act (AHCA), America’s Health Insurance Plans (AHIP) praised many of the provisions aimed at stabilizing the individual insurance market and implementing market reforms by 2020. Positive steps include:

  • Continuing tax credits to pay for premiums through the transition
  • Funding state efforts to stabilize risk pools
  • Providing more flexibility for states and health plans to offer consumers more choices
  • Ending many taxes, such as the health insurance tax

“The proposed legislation includes a number of positive steps to help stabilize the market and create a bridge to a reformed market during the 2018 and 2019 transition period,” Marilyn Tavenner, president and CEO of AHIP, wrote in the letter.

The group also supported the bill’s policies to promote continuous coverage after elimination of the ACA’s individual mandate. However, AHIP urged providing additional risk-pool funding as soon as 2017.

The Blue Cross Blue Shield Association (BCBSA) supported many of the same provisions, including the bill’s short-term market stabilization efforts. However, the group said in a memo that additional “market stabilizers” need to take effect in 2017 to keep premiums from rising.

BCBSA also urged Congress to increase the size of the proposed $100 billion Patient and State Stability Fund, which would provide 10-year funding to help implement high-risk pools, establish premium stabilization programs, fund payments to providers, and assist individuals with premiums and cost sharing, among other uses. But BCBSA urged bill changes to direct funding to offsetting the medical costs of individuals starting in 2020, when a freeze on Medicaid expansion would take effect. The insurer group also urged eliminating the requirement for states that want to draw down the funds to offer up-front matching funds, which increase from 7 percent in 2018 to 50 percent in 2026.

Even as insurers seek changes, the overall effect of the legislation as written could be positive for individual-market insurers, according to ratings agencies. Few insurers have prospered under the ACA in the individual market, which had overall underwriting losses of more than $3 billion in 2014 and $4.5 billion in 2015, with expected underperformance in 2016 and 2017, according to a March 7 analysis by S&P Global Market Intelligence.

S&P analysts wrote that the AHCA could provide “improved profitability for insurers in this business segment as the risk pool will have a greater proportion of younger enrollees.”

Medicaid Changes

Insurers also had mixed views on the bill’s Medicaid provisions. Insurers have an even larger role in Medicaid than in the individual market, covering more than 50 million enrollees (more than 70 percent) as compared to about 20 million.

“We’re open to a new funding mechanism, ensuring that there are enough resources to provide the services that we are being asked to provide,” Jeff Myers, president and CEO of Medicaid Health Plans of America (MHPA), said in an interview.

Among the Medicaid-related changes to the AHCA sought by insurers, BCBSA urged that it base Medicaid growth rates on increases in the prices for medical care, growth in the volume and intensity of services per person, and demographic effects such as the aging of the population.

“We are concerned that key components of the proposed new funding formulas starting in 2020—such as the base year selection and annual increases tied to the consumer price index for medical care—could result in unnecessary disruptions in the coverage and care beneficiaries depend on,” AHIP’s Tavenner wrote.

Myers’ group has not taken a position on the bill, which has yet to receive cost or coverage projections from the nonpartisan Congressional Budget Office.

S&P concluded the AHCA would cut ACA marketplace enrollments by 2 to 4 million and Medicaid enrollments by 4 to 6 million.

But Myers said it is not clear that states will seek to reduce their Medicaid enrollments as part of the new funding approach and promised flexibility.

“It’s still TBD given the way the financing mechanism works how states will respond to the incentives that they are given,” Myers said.

The bill’s replacement of the current federal Medicaid payment system with per capita caps may carry benefits for Medicaid insurers, according to some policy experts.

“If anything, it ought to strengthen their role,” Gail Wilensky, a senior fellow at Project HOPE and a former administrator of the precursor agency to the Centers for Medicare and Medicaid Services, said in an interview. The per capita cap “makes it tempting to pass the risk of providing care onto a group that will be responsible for it—that is, Medicaid managed care plans.”

Myers agreed that the bill will incentivize states to shift the 27 percent of enrollees still under fee-for-service Medicaid—who usually are the costliest enrollees—into managed care.

“It’s our operating theory that this is actually going to increase the rate at which states move populations into fully capitalized and integrated systems of care that take full risk,” Myers said.

The optimism on the part of at least some insurers regarding the impact of the Medicaid changes ran counter to an assessment from Fitch Ratings.

“This could have a negative effect on revenues and profits for insurers who administer Medicaid programs due to potential reductions in the number of individuals participating,” Mark Rouck, a senior director for Fitch, wrote in a March 9 assessment. “For the small number of rated health insurers that derive a significant proportion of their revenues from providing Medicaid products to states, this could become a significant credit and rating risk.”

Despite its expectation that Medicaid enrollments may decline under the AHCA, S&P also concluded that the law would offer “increased opportunity for private insurers as more states move to a managed Medicaid model for running the program.”

“Insurers should continue to generate low single-digit profits in this segment, but can be squeezed in the longer term if states reduce reimbursement rates to offset their greater burden of the cost,” S&P analysts wrote.

Further Changes Likely

House Speaker Paul Ryan has committed to a separate but concurrent legislative package that will implement statutory Medicaid changes, Myers said.

“The plans believe that once the discussions around available resources have been done, then we can have real discussions around what kind of care coordination and what kind of services we can provide to what size population, because by statute we have to be actuarially sound,” Myers said.

Others expect Medicaid and Medicare changes to come primarily through the substantial administrative power that the ACA has invested in the secretary of the U.S. Department of Health and Human Services (HHS), who is now Tom Price.

“All eyes should be on HHS,” Doug Holtz-Eakin, president of the American Action Forum and a conservative healthcare economist, said this week at AHIP’s Washington, D.C., policy meeting.

That’s because the spending reductions in the AHCA will create new pressure to reduce spending in Medicare and Medicaid.

“They are not going to do it legislatively, they are going to do it administratively and Tom Price has a lot of levers,” Holtz-Eakin said.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, March 09, 2017